Financially Strapped Decode Genetics Assesses Next Steps

By Catherine Varmazis

Nov. 7, 2008 | A day after Iceland’s financially beleaguered Decode Genetics released its third-quarter financials, President and CEO Kari Stefansson said in a webcast today that he remains optimistic about his company’s future while acknowledging that Decode finds itself “between a rock and a hard place."

Stefansson said the company’s liquid assets will only last until the end of the year, and laid blame for his company’s predicament squarely on now-bankrupt Lehman Brothers, which managed a substantial part of Decode’s money. Stefansson said their principal guidance to Lehman was to keep the funds invested in “totally liquid instruments.” Instead, it was invested in auction-rate securities that are “illiquid for the moment,” he said

CFO Lance Thibault reported “substantial improvements” in operating and net losses for third quarter and for the first nine months of the year, compared to the third quarter and the first nine months of 2007.

Kari Stefansson

“We are moving swiftly forward with a comprehensive review of our business and strategy while aggressively managing the use of our current resources,” said Thibault. “As we carry out our strategic review, we are continuing to execute on our product development work. In the third quarter we filed an IND for DG071, launched a breast cancer diagnostic in September, and are advancing in our sales and marketing efforts of our diagnostic tests.”

On September 30, 2008, the company had liquid funds available for operating activities of $11.8 million, compared to $23.7 million on June 30, 2008, and $64.2 million on December 31, 2007, Thibault reported. The decline in liquid funds is forcing the company to “examine all possible options available to us,” including the possible sale of non-core assets and securing of partnerships in order to support product development in the core business.

Thibault said Decode is exercising the 30-day grace period for the scheduled October 15 interest payment on its 3.5% Senior Convertible Notes due 2011, and that “we must obtain further financial resources…in order to continue operations beyond the end of this year. I would like to emphasize that we are making every effort to speed our strategic evaluation in order to obtain the resources necessary to enable the company to move forward with its work.”

Stefansson asserted his optimism in the face of these difficulties and cited the progress Decode has made in discovery, development, and diagnostics.

Referring to deCODEme, the personal genetic profiling test launched by Decode in November 2007, Stefansson noted that Time magazine had recently selected the retail genetic profiling test as the Invention of the Year but ascribed the invention to Decode's competitor 23andMe. “Despite the fact that we launched our test first – so we basically invented this, and also 23andMe is using a substantial number of sequence variants that we discovered. So we feel flattered by the fact that our test was selected as the invention of the year by Time magazine. We are amused by the fact that they decided to ascribe the invention to 23andMe, probably because its founder is associated with the rich and famous.” 23andMe cofounder Anne Wojcicki is the wife of Google cofounder Sergey Brin.

Stefansson reported that Decode has received “early indications of interest in [our] core assets from well-funded companies. Furthermore we can see that these parties enter this process with appreciation for the value we have created.” He said he expected to be able to report progress in the strategic review process within a matter of weeks.